OECD releases discussion draft on the transfer pricing aspects of financial transactions

OECD: Discussion draft on transfer pricing aspects

OECD has issued a Public Discussion Draft on Financial Transactions, as part of its continuing work on Base Erosion and Profit Shifting (BEPS).



Annika Lindström

Partner & Head of Tax & Legal

KPMG i Sverige


On Tuesday, OECD issued the Public Discussion Draft on Financial Transactions, [PDF 1.1 MB] as part of its continuing work on Base Erosion and Profit Shifting (BEPS). The long-delayed draft, which was originally expected during the previous summer, aims to provide guidance on financial transactions that have been a frequent source of disagreement between tax agencies and taxpayers.

The discussion draft provides guidance on the pricing of common intra-group financial transactions, such as loans, cash pools, hedging transactions and guarantees. The discussion draft also provides guidance on the treatment and pricing of captive insurance transactions.

Importantly, the report, once finalized, may close the door on several pricing approaches still commonly used in intra-group financial transactions, including the use of the group’s average funding rate and bank quotes in pricing lending transactions, as well as the use of bank deposit rates in pricing positive balances in group cash pools.

Of similar importance is the guidance contained in the discussion draft on the delineation of financial transactions, which should precede the determination of arm’s length pricing. Consistently with the previous BEPS reports, the draft calls for looking beyond the contractual terms of the transaction, with consideration to be given to the full set of circumstances surrounding the transaction and the options realistically available to both transaction parties. In particular, companies with limited or no control over the financial risks they contractually assume in intra-group financial transactions should not, according to the draft, be entitled to more than a risk-free rate of return.

OECD is seeking comments on the discussion draft until September 7, 2018.

KPMG’s comment

Once finalized, the OECD report will represent the most comprehensive guidance on the transfer pricing of financial transactions, providing some certainty to taxpayers. However, the report will also provide tax agencies with a tool in tax audits, particularly where there is little substance or commercial rationale in the transactions. Groups with existing intra-group financial transactions should already now start considering whether their arrangements are consistent with the key principles in the discussion draft.

Read more:
OECD Press Release

The article in Swedish

You are welcome to contact us should you have any questions regarding the potential consequences for your business.

Annika Lindström

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